Black Monday remembered

A look at our coverage during that time period shows some extreme reactions

It's like the old question: where were you when JFK was shot? Although too young to really remember that day, I'll never forget where I was when the financial markets melted on Oct. 19, 1987. Most key editors, reporters, sales people and managers were attending a company meeting out in Cedar Falls, Iowa, where Oster Communications was headquartered. During the meeting, our owner Merrill Oster interrupted the speaker and stood at the the podium looking shaken and pale. He made the announcement that the stock market had just collapsed — I don't remember how much the market was down at the time, but it was enough to have Oster stop the meeting and tell all reporters and editors, and well, everyone to get on a phone, call their sources and find out what was going on.

Back then there were limited choices on how to contact sources: There was no e-mail, no cell phones, no texting. Most people scrambled back to the company's office to find what we today call a land line.

What made this crash so frightening was the viciousness that erupted from the New York Stock Exchange, unleashing torrents of blame on the derivatives markets. Stock index futures were still relatively new; even the CBOE 100 options index (to become the S&P 100 options at the Chicago Board Options Exchange) had only been launched a few years before.

The question became: would stock index futures (and options) survive? Would the Chicago exchanges be able to beat back the heat from New York? Having intereviewed many portfolio managers and institutional traders who used derivatives for hedging, it seemed odd to me that the NYSE was so relentless in its blame. Afterall, the specialist system was archaic even then.

But it takes a "good crash" to start anew, and from that time the industry learned much, such as the Triple Witching impact, and it put mechanisms in place that it hoped would prevent this type of crash from happening again.

The story of "Cancel Crash" is slice of what happened around Black Monday, and especially on the Tuesday following. All the exchanges closed bar one: the Chicago Board of Trade (CBOT) and its Major Market Index. One industry insider who was a CBOT board member at the time and floor trader, said that Blair Hull definitely was the only one buying that day in the MMI pit, but the reason he was able to was the CBOT was the only exchange that resisted the wave of closures. At a morning board meeting, closing the exchange was debated and one member, former CBOT Chairman Pat Arbor, argued strongly against closing it. He may be a wanted man today, but his stubborness, and the decision by Hull to step into the path of a freight train, might have prevented a meltdown of epic proportions.

Some may believe that "Black Monday" now is a quaint memory, especially considering all the crashes, bubble bursts and meltdowns that have happened since. But then this was the first time we peered over the cliff and it was a warning, something the financial industry took seriously and made changes it thought appropriate. Was it enough? Too much? Leave that for historians to debate.

As a salute to "Cancel Crash," below are some of the pieces that Futures did after the 1987 crash. We'll be adding more as we go forward, adding depth to one of the scarier Octobers in market history.

About the Author

In her many years covering the futures industry Ginger has interviewed some of today's best global hedge fund and commodity trading advisors. Ginger received a master's degree in journalism at Northwestern University's Medill School of Journalism and a bachelor’s in communication arts from the University of Wisconsin – Madison